Brookfield after 30-percent stake in General Growth, source says

Brookfield Asset Management Inc. is in talks with General Growth Properties Inc. to take a 30-percent stake in the shopping
mall owner as it comes out of bankruptcy, said a person familiar with the negotiations.

The plan by Toronto-based Brookfield would give General Growth a higher valuation than a $10 billion takeover bid by Simon
Property Group Inc., said the person, who declined to be identified because the talks aren’t public.

Indianapolis-based Simon, the largest U.S. shopping mall owner, has offered to purchase General Growth in a deal that would
give equity investors about $9 a share and repay unsecured creditors in full. Chicago-based General Growth said the bid, made
public on Feb. 16, was too low and invited other potential buyers to make offers.

Brookfield owns almost $1 billion in General Growth debt, two people with knowledge of the company’s holdings said
last week. General Growth may raise up to $2 billion or more from public markets to fund its exit from bankruptcy, according
to one of those people, who asked not to be named because the talks are private.

Denis Couture, a spokesman for Brookfield, declined to comment. David Keating, a spokesman for General Growth, didn’t
immediately respond to a request for comment.

General Growth’s shares have rallied past Simon’s buyout offer, signaling investors expect a higher bid. The
stock rose 39 cents, or 3.1 percent, to $13.15 each Tuesday afternoon in over-the-counter trading.

William Ackman’s Pershing Square Capital Management LP, General Growth’s largest shareholder, in December issued
a 54-page presentation that said the stock is worth $24 to $43. Pershing Square, based in New York, owns a 25-percent economic
interest in General Growth, including 7.5 percent of its shares.

Based on the current valuations for U.S. mall owners and Simon and Brookfield’s “strong strategic and financial
motivations,” General Growth is probably worth $11 to $18 a share, Green Street Advisors Inc., a Newport Beach, California-
based research company, said in a Jan. 13 note.

Brookfield’s plan to bid for a stake in General Growth was reported yesterday by the Wall Street Journal.

General Growth, the owner of New York’s South Street Seaport and Boston’s Faneuil Hall, filed the biggest real-estate
bankruptcy in U.S. history in April after amassing $27 billion in debt during an acquisition spree.

Brookfield said in a Feb. 19 letter to shareholders that it “acquired a substantial amount of defaulted bank debt issued
by General Growth Properties” at a discount to par value. In a fourth-quarter earnings conference call that day, Brookfield
Chief Executive Officer Bruce Flatt and other executives declined to discuss General Growth.

Flatt said in his Feb. 19 letter that Brookfield believes that “acquiring assets through distress situations offers
one of the few ways to acquire assets at meaningful discounts to their intrinsic value.” Brookfield last year assembled
a $5 billion equity group to invest in distressed properties.

Brookfield owns more than 100 office buildings; 2.9 million acres of timber and agricultural land in Canada, the U.S. and
Brazil; apartment complexes; 20 shipping terminals in Europe and Australia; 164 hydroelectric plants; railroads in Australia;
natural-gas pipelines in the U.S.; and a property-brokerage business with almost 40,000 brokers in about 2,000 offices in
Canada, the U.S. and the U.K.

Blackstone Group LP, the world’s largest private-equity firm, may join Simon’s bid, two people with knowledge
of the discussions said on Feb. 18. Blackstone is in preliminary talks with Simon, said the people, who declined to be identified
because the negotiations are private. Indianapolis-based Simon would lead any resulting partnership, one of the people said.

 

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets on
{{ count_down }}